|
|
|
|
|
|
|||||
      
|
Ottawa, October 15, 1996
1996-072
Notes for Remarks on the Future of Canada's Financial Services Sector by the Honourable Doug Peters, Secretary of State for International Financial Institutions, to the Toronto Society of Fellows of the Insurance Institute of Canada
Toronto, Ontario
October 15, 1996
Delivered text is official version
At the outset, let me say that I am delighted to be here today in the presence of a group that includes many of Toronto's most successful insurance brokers and agents. Canadians continue to place a high value on the services you provide in the efficient delivery of insurance products.
I welcome this opportunity to share my thoughts on where Canada's financial services sector appears to be headed, as well as the direction of government policy.
These are important issues, not only for this group, but for all Canadians.
We know that jobs are an important issue for all Canadians. We are taking steps to ensure that the financial sector continues to act as a strong contributor to job creation. An important effort to meet this objective will be the creation of a major financial sector Task Force, about which I will provide more detail a little later.
Importance of our Financial Sector
An efficient, competitive and vibrant financial service sector is critical to achieving Canada's full potential for economic growth and job creation.
And the sector is doubly important because not only is it a vital facilitator for the economy as a whole, a major economic lever capable of delivering tremendous added value, it is also a formidable economic force in its own right. Let me give a few examples to provide some perspective.
The financial service sector employs over a half-million people, or about 3.5 per cent of working Canadians, and contributes about 7 1/2 per cent of the GDP.
The independent property and casualty insurance brokerage industry alone employs close to 80,000 people in Canada, consisting of over 23,000 independent brokers and agents. This distribution network sells over 82% of general insurance companies' products and services.
Our banking sector employs over 170,000 people, and has about $41 billion in outstanding loans to Canadian small businesses. The international presence of Canadian banks is also considerable. They are active in about 60 countries, contributing $1.8 billion to earnings.
Canada's 140 life and health insurance companies pay out about $28 billion annually in benefits to Canadian policyholders. Canadian companies operate in more than 20 countries, and offshore revenues contribute almost half of the industry's total premium income.
Both domestic and international aspects of the financial services sector are clearly of major importance. Both aspects are also under pressure to change.
Recent Developments & Trends
This pressure has been recognized.
A comprehensive reform of financial sector legislation was undertaken by the federal government in 1992.
Some of what that reform accomplished involved:
- creating a new framework for competition in the financial sector by removing many of the restrictions preventing financial institutions of one type from fully competing with another;
- establishing rules for an ownership policy that allowed for both widely-held and closely-held financial institutions;
- updating prudential safeguards to reflect the changing environment in which financial institutions operate; and
- modernizing the existing statutes by adopting rules and procedures modelled on the Canada Business Corporation Act.
Since the far-reaching reforms of 1992, we have witnessed changes which are making a significant impact on the competitive landscape.
Of chief importance, perhaps, is the fact that FIs have taken advantage of new powers to purchase other institutions outside their core business. This has changed the composition and ownership of financial institutions dramatically.
For example, banks in recent years have acquired a number of trust companies and investment dealers. This trend is continuing. In August, for example, RBC Dominion Securities announced its acquisition of Richardson Greenshields.
These acquisitions reflect the perception of some that size and synergies are needed to enhance competitive strengths in a global marketplace, where mega-mergers seem to be the order of the day.
The pace of consolidation in our financial sector is also a response to perceptions of overcapacity, particularly in the domestic insurance and deposit-taking sectors.
Traditional core business in these sectors has eroded dramatically. Deposit-taking institutions are losing deposits to mutual funds and savings products are displacing certain types of insurance contracts.
Our financial institutions can, however, take advantage of domestic growth opportunities. With the changing demographics, consumer demand for retirement products is growing rapidly. We are continually seeing new and more sophisticated mutual fund and insurance products targeted at this market segment.
Another important trend relates to the initial stirrings of a technological revolution in the delivery of financial services and operation of payment mechanisms.
The internet, electronic banking by phone, and smart cards, cards that have the potential of allowing consumers to make cash transactions electronically, are but a few examples.
New technology is also providing the potential for more cross-border transactions and reducing the need for facilities made of bricks and mortar. On-site physical presence is no longer needed for an increasing number of financial services transactions in today's marketplace.
Meanwhile, globalization is creating new challenges and opportunities, with competition surging forward from around the world. Our markets are open to competition from foreign institutions that will quickly move into market segments where profit margins appear to be overly large. This works to the consumer's benefit.
Our own financial institutions are also seizing growth opportunities in offshore emerging markets opened up by trade agreements such as NAFTA and the successor to GATT, the World Trade Organization.
Finally, there is tremendous growth in what I would call the non-traditional providers of financial services. I am referring here to companies like Newcourt Credit Group. These companies have been successful in creating innovative financing vehicles which have benefited many small Canadian businesses, and even provinces. Newcourt recently provided the funding for a significant highway project in Nova Scotia.
Public Policy Goals
As you can see, our financial sector is evolving dramatically.
To address the broad trends under way, and I have mentioned only a few, we must stand back and formulate precisely a view of what our public policy goals should be. I want to outline briefly what I see as some of these important goals.
First and foremost we must have a financial sector which is safe and sound.
The failure of a few financial institutions has focused attention on the federal supervisory system. We have taken action through Bill C-15 to strengthen the supervisory and regulatory framework for federal financial institutions. Deposit-holders and policyholders will benefit from these changes.
Public policy must also be shaped to allow our financial sector to maximize its contribution to economic growth and job creation. An efficient financial sector can provide powerful leverage to our overall economic performance.
It is vital that public policy promote innovation in financial services through the use of new technologies. At the same time, we must keep in mind the risks related to privacy protection, availability of satisfactory product and service information to the consumer, solvency, fraud and money laundering.
Public policy must also ensure that the financial sector operates in the best interests of Canadian businesses and consumers.
Canadians want purchasing convenience, least-cost pricing and increased product choice to meet their changing needs. The consumer will, more than ever, influence the future direction of our financial sector.
The most successful financial institutions will be those that are adept at anticipating consumer needs.
Lastly, we want to ensure that our payments system promotes innovation, provides fair access and a high degree of competition, while minimizing risk.
Two-Stage Approach to Shaping the Regulatory Framework
As was indicated in our consultation paper last June, the government's strategy is to respond to the changing financial sector environment in two key stages.
First, in 1997 some important changes -- changes identified in our consultations with stakeholders as being necessary in the short term -- will be made. The overall framework is viewed as generally working well and requires no fundamental alteration for the time being.
As a second stage, the government has announced that it will undertake a comprehensive review of the framework, ensuring that we have the right one to carry us into the next century. To that end, a Task Force on the Future of the Canadian Financial Services Sector will be established.
1997 Proposals
Let me first discuss briefly the 1997 proposals.
A major aspect of the first phase involves proposals to enhance consumer protection as of 1997.
The key proposals call for the government:
- to introduce privacy regulations requiring FIs to adopt a code of conduct governing the collection, use, retention and disclosure of information;
- to work with FIs and consumer groups to improve dissemination of information about fees and to develop and implement a strategy improving access to financial services for low-income Canadians; and
- to update cost-of-credit disclosure regulation.
Measures to streamline regulatory burden are proposed. This would be done by working with the provinces to:
- harmonize trust and loan legislation;
- create a Canadian Securities Commission to enhance efficiency of our capital markets, if a sufficient number of provinces request that we institute such a voluntary-participation regime; and
- examine the feasibility of ending federal regulation of provincial credit union centrals which are already regulated by the provinces.
In addition, regulatory burden will be reduced to lower FI costs and strengthen their competitiveness. Proposals include:
- streamlining the self-dealing regime;
- allowing FIs to conduct information processing and specialized financing activities in-house;
- allowing foreign banks that specialize in serving large corporate customers to opt out of CDIC coverage; and
- updating the foreign bank entry regime.
There are also a number of proposals to fine-tune legislation. These include:
- modifying some corporate governance provisions to keep them abreast of evolving standards;
- providing FIs with more flexibility to make joint venture arrangements, enabling them to better compete at home and abroad; and
- providing mutual insurance companies with greater access to capital to enable them to compete more effectively.
I think you will agree that this first phase represents a relatively comprehensive fine-tuning of a system that is working well.
Task Force
The Task Force will move beyond fine-tuning. It will be a vehicle to ensure that the financial sector itself remains a vital force while continuing to provide powerful leverage for job creation and economic growth as we approach the 21st century.
To support this goal, the Task Force will define a vision of the financial sector Canada should strive for -- one that can best serve the needs of Canadians and meet global competition head on.
The Task Force will examine the broader trends I have mentioned, such as globalization, technological advances and changes to the competitive landscape, and will provide advice to the government on an appropriate and forward-looking framework.
The goal of the Task Force must be to start thinking now about the broad trends at play and how to address them to ensure an efficient, secure and competitive financial services sector is in place for the 21st century.
We already have a world-class financial sector. But we can't rest on our laurels. To maintain our financial sector's present stature, we must have a clear roadmap showing where we are going.
The Task Force will therefore be asked to provide policy advice on the appropriate framework to feed into the next reform of the financial services sector's legislative framework. This reform should take place no later than 2002.
I expect the Task Force to report its findings within about 18 months after commencing its work.
In looking at the issues that must be addressed, we need to think globally and in a broad context. Therefore, it is important that the issues not be handled on a piecemeal basis, but viewed together and in a broad context.
For example, although business powers is an important issue, I will be looking for the Task Force to have a broader vision of the kind of financial sector Canada needs in a changing world. Let's first get the broad framework right, and then see if there are in fact any implications for business powers.
We will announce the mandate and composition of the Task Force shortly. In particular, I will look to the Task Force to consider a number of issues in its deliberations, such as:
- the kinds of changes to the framework necessary to ensure that the financial sector contributes to economic growth and job creation.
- how the financial services sector should evolve to meet the emerging needs of Canadian consumers and businesses.
- how to sustain a healthy, vibrant financial sector that can best promote competitiveness and efficiency.
- what needs to be done to ensure that financial institutions take full advantage of new technologies in developing innovative new products and delivery systems to meet the changing needs of consumers.
But, ultimately, what the government and stakeholders are seeking in this exercise can best be reflected in the following question:
What should we do to make sure that Canada continues to have one of the best financial systems in the world?
It is clear that the Task Force will help provide a longer-term answer to this question. But we are also keeping an eye on important shorter-term issues.
Payments System Review
In the consultation paper on the 1997 review, the government noted the importance of conducting a comprehensive review of our payments system.
Our current system is already one of the best in the world.
However, we believe that now is the time to undertake a major review.
This review will be assisted by a Payments System Advisory Committee which will look at a number of complex issues, particularly those related to technology and payments system access.
Work of the advisory committee will feed into the Task Force on the Future of the Canadian Financial Services Sector.
Conclusion
In conclusion, I want to emphasize that the government and Task Force, on their own, can't do the whole job of building the foundation which will allow our financial sector to reach its full potential as we move into the next century. We are going to need additional expertise and ideas from the business community to help Canada stay ahead.
Working together we can ensure that our financial sector maximizes its essential contribution to economic growth and job creation in Canada.
I am confident that the work of the Task Force, in combination with the changes planned for 1997, will provide a firm footing to sustain our world-class financial sector.
And these initiatives will optimize the benefits flowing to consumers from new technology and the high degree of competition among our FIs.
I believe these are the right goals, and we are actively pursuing them. Thank you.
|
|
||||
| Last Updated: 2004-03-21 |
|
||||
